Air Canada amasses cash, liquidity in bid to reduce leverage to 1.2x

By Devika Patel

Knoxville, Tenn., July 27 – Air Canada had record levels of cash and liquidity at the end of the last quarter, which it will use to pay for airplanes with cash, as opposed to debt, as part of management’s efforts to reduce the company’s leverage to 1.2x by the end of 2020.

“Adjusted net debt was down,” president and chief executive officer Calin Rovinescu said on the company’s second quarter ended June 30 earnings conference call on Friday.

“We closed the quarter with record revenues, cash and liquidity levels,” Rovinescu said.

The company is holding on to cash right now in order to pay for planes with cash rather than through debt as part of its plan to de-lever.

“We are carrying more cash on our balance sheet,” executive vice president and chief financial officer Michael Rousseau said on the call.

“It’s certainly a nice problem to have.

“Our view right now is we’ll be deploying some of that cash to primarily pay for planes coming in next year with cash rather than incurring debt.

“That’s all part of our deleveraging strategy and so I think that’s the primary purpose of that extra cash at this point in time,” Rousseau said.

As of June 30, 2018, Air Canada’s leverage ratio was 2.1x, unchanged from Dec. 31, 2017.

“We remain on track to achieve our [leverage] ratio not exceeding 1.2x by the end of 2020, which we believe supports an investment-grade credit rating,” Rousseau said.

Second quarter EBITDAR was C$646 million.

As of June 30, the company's liquidity was C$5,064,000,000, the highest level in Air Canada’s history.

At the end of June, net debt was C$6.1 billion, a decrease of C$5 million from Dec. 31, 2017.

Montreal-based Air Canada is Canada’s largest domestic and international airline.

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